Some Md. Officials Forming Second Opinions on HMO
By Avram Goldstein and Charles Babington
The decision to license PrimeHealth Corp., which has so far received $16 million in state Medicaid payments, drew virtually no publicity at the time. Documents now show, however, that the new health maintenance organization was aided by state lawmakers and by regulators who either discounted or did not notice evidence of questionable ownership and potentially troubling debts.
State and federal grand juries are probing PrimeHealth's activities as part of a larger corruption investigation that centers on former state senator Larry Young. Maryland officials have temporarily suspended Medicaid payments to the company. And the Insurance Administration is investigating whether officials associated with PrimeHealth fraudulently transferred valuable assets beyond the reach of their creditors.
Maryland regulators now say they are not even sure who owns the company, a critical factor in evaluating any insurer or HMO.
"It's absolutely stunning," said Robert Hunter, a former Texas insurance commissioner who now is director of insurance for the Consumer Federation of America. "This is Insurance Regulation 101. You go out and check things out."
Because of the financial and legal complexities, the PrimeHealth case raises the question of whether political pressure influenced Maryland regulatory decisions that are supposed to be free from politics.
Several state legislators repeatedly pressed Maryland officials in 1996 and 1997 to include PrimeHealth in the new state managed-care program for Medicaid enrollees, arguing that the state needed at least one black-owned firm in the program. These supporters included three Prince George's lawmakers and Young, the expelled Baltimore senator whose private-sector endeavors received $31,425 from PrimeHealth, according to the General Assembly's ethics committee.
Documents show that state regulators' inquiries into PrimeHealth's legal and financial status triggered suggestions of racial prejudice. At a critical juncture, PrimeHealth's president, Edward A. Thomas, sent the Insurance Administration a letter accusing regulators of thwarting the HMO's efforts "because of who we are."
The administration sharply denied the implication of racism. Four weeks later, the agency granted PrimeHealth's license, even though its examiners previously had catalogued a list of problems ranging from questionable debts to unbalanced checking accounts.
Maryland officials say that they were not unduly pressured by politicians. They say the administration of Gov. Parris N. Glendening (D) has a major commitment to assisting minority-owned firms, and they say they have been generally pleased with PrimeHealth's service to Medicaid enrollees.
"We had wanted to encourage minority entrepreneurs to come into this business and do well," said state health secretary Martin P. Wasserman.
Thomas and other PrimeHealth officials declined comment, citing the ongoing state and federal criminal investigation.
A Key Player
A central player in PrimeHealth's development is a Lanham radiologist named Christian E. Chinwuba, who declined to be interviewed. PrimeHealth officials say Chinwuba is not an officer in their company. However, Chinwuba's name was signed on a March 1996 notarized deed of trust that lists him as PrimeHealth's "chairman."
Chinwuba comes from a medical family with Nigerian roots, and he graduated from Howard University's medical school in 1979. He also has strong ties to some Prince George's lawmakers.
State Sen. Decatur W. Trotter (D-Prince George's) said Chinwuba treated him for a serious illness in the early 1990s. "They kind of saved me," said Trotter, who later served a stint as a consultant to Diagnostic Health Imaging Services, a radiology firm launched by Chinwuba.
Diagnostic Health also contributed $3,500 to Glendening's successful 1994 campaign for governor, and it hired politically connected lawyers such as Wayne K. Curry -- now the Prince George's County executive.
Jeff Emerson -- chief executive officer of the NYLCare HMO, which has extensive dealings before the Maryland government -- learned firsthand about Chinwuba's political connections. He said Chinwuba had served as a radiologist for his firm several years ago but was dismissed because of complaints from physicians and patients.
He said Trotter and Nathaniel Exum, a Prince George's delegate, asked him to a breakfast meeting to urge him to keep Chinwuba on board. Emerson said he politely declined, and he said he did not feel he was being unduly pressured. Trotter said he initiated the breakfast to seek an explanation of Chinwuba's dismissal, and dropped the matter after that.
Chinwuba built a string of radiology offices, setting fees low enough to prove attractive to HMOs. But by 1995, the practice had flagged and Diagnostic Health Imaging Systems Inc. faced about $3 million in court-ordered judgments. That's when at least two of its employees helped incorporate PrimeHealth, listing its address as that of Diagnostic Health.
At the time, the state government had launched efforts to put Medicaid enrollees into managed care organizations. The program could mean millions of dollars in new business for qualified firms.
Getting an HMO License
To qualify, PrimeHealth needed an HMO license from the state Insurance Administration. That required at least $1.5 million in assets to assure financial stability. According to state documents, Chinwuba donated to PrimeHealth the most valuable asset that Diagnostic possessed: a multimillion-dollar magnetic resonance imaging device, or MRI, used to create cross-sectional pictures of internal organs.
Without the MRI device, insurance regulators said, PrimeHealth would not meet the state solvency requirements. For months, regulators and PrimeHealth officials battled over whether the MRI machine was free of legal encumbrances that might preclude it from being counted as a PrimeHealth asset.
PrimeHealth officials argued that only a Chicago equipment company held a lien, or legal claim, against the machine as security for money owed by Diagnostic Health. And that creditor, they said, agreed to let Diagnostic give the machine to PrimeHealth in return for a pledge that PrimeHealth would guarantee the remaining payments.
At the time, however, Diagnostic still owed hundreds of thousands of dollars to other creditors. In fact, the state of Maryland had filed a $160,442 lien against the company for back taxes, and the Internal Revenue Service had a $253,885 lien. (The company last month paid off the state tax debt.) Another creditor was Washington radiologist David P. Sniezek, who long had been in court trying to collect $645,000 that Chinwuba and Diagnostic owed him from the sale of two Maryland medical clinics.
Sniezek's lawyer, Thomas A. Lerner, tried to take ownership of the MRI as payment of the debt, but a judge ruled that the Chicago creditor had a higher priority. Lerner said Diagnostic still owes Sniezek more than $400,000.
PrimeHealth mobilized its political allies. Trotter, Young and Exum made calls or visits to state regulators on PrimeHealth's behalf, officials said.
Sen. Ulysses Currie (D-Prince George's) made an emotional visit to then-Insurance Commissioner Dwight K. Bartlett III on behalf of PrimeHealth, arguing that insurance regulators were racially insensitive to the black-owned HMO. Bartlett, a civil rights activist in the 1960s, called Currie's accusations "outrageous."
Currie said, "My special plea was, 'Here we again have an opportunity to bring on a minority [company] to serve the Medicaid population. . . . Let's make it a level playing field.' "
Regulators eventually accepted PrimeHealth's argument that its assets were sufficient and granted the HMO license. Bartlett said he was unaware of many of the large debts owed by Diagnostic Health. He said he did not ask his aides for details when they said PrimeHealth was ready for a license.
After receiving its Maryland insurance license in September 1996, PrimeHealth sought a Medicaid contract from state health officials. Health regulators initially cited poor screening of doctors, an inadequate phone system and other problems, but they said they worked with the company to resolve problems. PrimeHealth received approval to participate in Medicaid last August and has since enrolled about 12,000 people.
Maryland's insurance regulators now say the decision to grant the license may have been wrong. They say they believe the transfer of the MRI from Diagnostic Health to PrimeHealth may have been a device by Diagnostic Health to move assets beyond the reach of creditors like Sniezek. In a March 11 letter to PrimeHealth, current state insurance commissioner Steven B. Larsen said: "The judgment creditors may well have a cause of action to set aside the conveyance of the MRI equipment under the Maryland Fraudulent Conveyance Act."
Larsen also demanded sworn statements from PrimeHealth officials as to who actually owns the firm. Last week, the state temporarily suspended Medicaid payments to PrimeHealth pending receipt of answers. The company has until Friday to respond.
© Copyright 1998 The Washington Post Company